1. Field of the Invention
The present invention relates generally to the management of financial accounts and more particularly, to a method, system and computer program product for auditing and reconciling custodial accounts.
2. Background Art
Through a custodial arrangement, deposit accounts may be established at one or more depository institutions by an agent and/or custodian on behalf of its customers. (Such deposit accounts are referred to herein as “custodial deposit accounts.”) The agent and/or custodian responsible for establishing and holding such deposit accounts may be, for example, a broker-dealer registered under the Securities Exchange Act of 1934 as amended (referred to herein as a “broker-dealer”), a bank, a credit union, or another regulated financial institution. (Such agent and/or custodian is referred to herein as a “custodial agent”). For example, a broker-dealer may automatically invest, or “sweep,” funds (e.g., free credit balances) from a customer's brokerage account into interest-bearing deposit accounts, which may be, or include, a money market deposit account. If funds are needed by the customer to settle securities transactions or cash management activity, funds are withdrawn by the broker-dealer to cover such transactions.
In some banking systems around the world, deposit accounts are insured by government-run deposit insurance programs up to an established deposit insurance limit. In the United States, for example, the current federal deposit insurance limit is generally $100,000 per depositor (in each insurable capacity) in any one insured depository institution. Custodial agents wishing to offer their customers government-backed insurance in excess of the established insurance limit have limited options. One option is for the custodial agent to place customer funds in a network of depository institutions in amounts that do not exceed the deposit insurance limit for each customer at each depository institution, permitting customer funds to be eligible for insurance coverage in excess of the basic $100,000 limit.
These sweep arrangements benefit depository institutions in the bank network, by providing a large, stable source of deposits. Bank reserve requirements can be managed by utilizing a dual deposit account structure. Each custodial agent establishes a money market deposit account (“MMDA”) and a transaction account (“TA”) with each depository institution in the name of the custodial agent as agent and/or custodian for its customers (the “Custodial MMDA” and the “Custodial TA”). Each customer's MMDA and TA are evidenced by books and records maintained by the custodial agent (the “Customer MMDA” and the “Customer TA”).
The Customer MMDA serves as the customer's primary deposit account and is the source of funds for the Customer TA. In order to comply with banking regulations, fund withdrawals to outside entities are directed from the Customer TA. In the United States, for example, Regulation D of the Board of Governors of the Federal Reserve System (“Regulation D”) limits transfers from an MMDA account to six per month. This limit can be managed, for example, by transferring the entire Customer MMDA account to the Customer TA before the customer exhausts the monthly limit. Such transfers allow the customer to retain access to all cash in his or her deposit account. Transfers from the Custodial MMDA to the Custodial TA may exceed the six transfers per month restriction in Regulation D so long as each Customer MMDA complies with the restriction. Regulation D compliance is accomplished by enforcement of the transfer and withdrawal restrictions by the custodial agent with respect to each Customer MMDA.
Notwithstanding the above-described benefits, however, such custodial arrangements create complexities for both the custodial agent and the depository institution. There exists a need, therefore, for a method and system for auditing and reconciling such custodial accounts.